Pay early and beat the GST rise

The Auckland City Council is encouraging ratepayers to pay their 2010/2011 rates before 1 October rather than in instalments spread over the whole year. This is because instalments paid after 1 October will be subject to GST at the new 15% rate whereas if they pay before 1 October the old 12.5% rate applies.


The technical issue here is the special “time of supply” rule which determines when GST applies to instalment arrangements. If the contract is for the provision of services GST is accounted for when each instalment is paid or is due, whichever is earlier. So, for someone under an instalment arrangement spanning 1 October the GST applying to instalments paid after that date will be 15%. What the Auckland City Council is getting at is that it’s possible to take advantage of the old GST rate by paying those instalments before 1 October instead of after.

This obviously could apply to other arrangements. For example, rental or hire agreements and possibly insurance.

What we don’t know is where the IRD will draw the line on what is acceptable behaviour and what is tax avoidance, see earlier post regarding the IRD’s cautionary statement that “excessive” cases of pre-invoicing or pre-paying may be tax avoidance.


2 replies
  1. Kerry Marshall
    Kerry Marshall says:

    Are you saying that a service paid in April for a year (like an website charge) will have to be reinvoiced from 1 October at the new rate? What happens with an annual subscription like say membership of a club or the AA?

    • iainblakeley
      iainblakeley says:

      For services paid for in advance the GST rate is the rate applicable when the payment is made. So if paid before 1 October for the year there is no re-invoicing after 1 October. However, if payments continue to be made in, say, monthly instalments the instalments after 1 October will be at the new 15% rate. That’s why some councils are inviting rate payers to pay their rates for the June 2011 year in advance and take advantage of the lower GST rate for the whole year instead of by instalments.


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